5.  The applicant company was incorporated as a limited liability company on 27 December 1995 by decision of the Kaspi District Court, Georgia. The second applicant was born in 1956 and lives in Tbilisi.
6.  On 23 July 1998, the second applicant, in his capacity as founder and director of the construction company “Iza” Ltd, the applicant company, signed a building repair contract with a State school. The contract provided for the transfer of 117,514 Georgian Laris (“GEL”, EUR 53,892.50)[1] from the budget of the Ministry of Education onto the account of the applicant company. In exchange, the applicant company would perform repairs to the school.
7.  Despite the fact that, by August 1998, the applicant company had already done some of the repairs, equivalent to 13,000 GEL (EUR 5,965)1 the Ministry of Education only transferred 5,800 GEL (EUR 2,661)1 to the company's account.
8.  The tax authorities initiated proceedings against the applicant company and the second applicant personally, demanding taxes in the amount of 30,735 GEL (EUR 14,104)1. According to the applicants' submissions, the tax claim was based on the total payment due for the work performed under the contract of 23 July 1998, whilst, in reality, the applicant company only received partial payment.
9.  On 23 January 2001, the Kaspi District Court partially upheld the claim of the tax authorities. While dismissing the tax claim of 26,388 GEL (EUR 12,106)1 towards the applicant company as being unsubstantiated, the District Court, in view of the second applicant's recognition of his company's indebtedness before the State budget as of 22 April 1998 (well before the signing of the contract with the Ministry of Education), ordered the second applicant personally to pay the VAT debt of 4,347 GEL (EUR 1,994)1.
10.  As the remaining sum for the work performed under the contract of 23 July 1998 was not paid by the Ministry of Education and the tax debt of the second applicant was outstanding, according to the applicants' submissions, the applicant company could hardly continue its economic activity.
11.  The applicant company, represented by the second applicant, brought proceedings against the Ministry of Education claiming the remaining 7,200 GEL (EUR 3,304)1 for the performed work, as well as the second applicant's tax debt of 4,347 GEL (EUR 1,994)1, given the Ministry's failure to meet its contractual obligations. By a judgment of 14 May 2001, the Didube-Chughureti District Court granted the applicant company's claims in full.
12.  There was no appeal against the judgment of 14 May 2001, which therefore acquired binding force on 14 June 2001. Based on that judgment, on 2 July 2001, the District Court issued an order obliging the Ministry of Education to pay the applicant company 11,628 GEL (EUR 5,332)[2]. However, the order remained unexecuted.
13.  On 19 April 2002, the second applicant, acting again on behalf of the applicant company, requested the Execution Department of the Ministry of Justice to comply with the judgment of 14 May 2001. In response, on 13 May 2002, the Head of the Department explained that the enforcement of judgments against the State budget institutions still remained one of the most difficult tasks to accomplish for the Enforcement Authorities. No information was provided as to when exactly enforcement could be expected.
14.  On 29 October 2002, the second applicant again addressed the Ministry of Justice. This time he appealed directly to the Minister of Justice, demanding the immediate implementation of the decision. This demand went unanswered.
15.  On the same day, 29 October 2002, the second applicant applied to the Office of the Prosecutor General, requesting the initiation of criminal proceedings for the non-implementation of a binding judicial decision, as laid down in Article 381 of the Criminal Code. However, his request was dismissed on 27 December 2002; the Office of the Prosecutor did not find any intentional wrongdoing on the part of the authorities – the Ministry of Education, the Ministry of Finance and the Ministry of Justice – commenting that the delay had an objective reason, namely the lack of finances in the State budget. Therefore nobody could be held criminally liable.
16.  On 10 November 2002, by the Notification No. 35 the Kaspi District Tax authorities imposed upon the applicant company the fine of 74,500 GEL (EUR 34,174)2 as an accrued penalty for the second applicant's outstanding tax debt of 4,347 GEL (EUR 1,994)2. However, following the applicant company's judicial dispute, the Kaspi Regional Court declared the notification null and void. This decision was upheld by the Tbilisi Regional Court on 5 May 2003; along with annulment of the notification, the court instructed the tax authorities to adopt a new administrative act after comprehensive re-examination and reassessment of the facts.
17.  On 24 August 2004, the Gori regional tax authorities issued a new notification imposing on the applicant company a fine of 17,061 GEL (EUR 7,825.81)2 for the same VAT debt of the second applicant. This notification was never challenged by the applicants and is still in force.
18.  The tax debt of the second applicant constitutes, at the same time, part of the judgment debt of 14 May 2001, which still has not been paid by the State, more than four years later.
19.  On 2 July 2004, the Government adopted an Ordinance introducing a mechanism for the gradual payment of outstanding debts (see paragraph 26 below).